What credit score do you need to buy a house? It can be confusing when it comes to this. If you know how much mortgage you will qualify for, you may feel a little more confident in your decision about where and how to purchase your new home.
But when it comes to the type of property you are interested in buying, you will need to calculate your credit score first before you start looking. There are a few things you should know before you do that though. First of all, there are many different kinds of credit scores. Most lenders will only consider one or two types of credit scores in determining your loan offer, so you will need to find out what they are.
The three most common are the FICO score, the Vantage score, and the TransUnion score. You may not be able to get all three at once from any one of these. Most lenders use all three and then some when evaluating your application. The most important thing to know is which one you use to determine what kind of loan you will qualify for.
So what is your credit score? It is a numerical score that relates to your financial health in many ways, including your credit history, your payments, and your debt-to-income ratio. An average FICO score lies between 670 – 739.
What Credit Score Is Enough to Qualify to Buy a House?
It is not as simple as it may seem when asking the question, “what credit score is enough to buy a house?” Three factors that determine your credit score, all of which affect the amount of money you can borrow for any purpose. A score of 580 is fair to qualify to buy a home. Keep in mind that this score may vary with a different type of loans.
· Debt-to-income ratio
The first factor is the debt-to-income ratio. This ratio is calculated by dividing the total amount of debt you currently have by the gross income you currently earn. You are given a letter grade for each level of debt on your credit report, so if your debt-to-income ratio is too high then lenders will deny you financing.
· Payment history
Your credit score will also be affected by your payment history. Your payment history affects both the length of time it takes to clear your debt and how much interest you will pay on your loan. If you have a poor payment history then lenders will doubt your ability to make your loan payments.
· Lender type
Another thing that affects your credit score is the type of lender you use. Lenders can have a large effect on your credit score if you are using them to borrow money for purposes other than buying a home.
A mortgage company is just one of many lenders and banks that lend money to people. Some of these lenders are more lenient with their lending policies than others.
Mortgage type minimum credit score qualification
Below are the minimum credit scores that are needed to qualify to buy a house for different mortgage types.
Conventional loan
Conventional loan borrowers require a credit score of at least 620 and usually more than that. A conventional loan is one in which the borrower pays back the mortgage amount plus principle plus interest after the term is over. A conventional mortgage is typically issued with a shorter term than an adjustable-rate mortgage (ARM) or a fixed-rate mortgage.
FHA loan
FHA mortgage loan credit requirements do not end with FICO credit scores. Borrowers must be aware of the fact that applying for the loan process without on-time, on-budget payments for major financial commitments can make it difficult for your lender to approve your application. The minimum credit score for an FHA loan is 500 with a 10% down payment and 580 with a 3.5% down payment.
Jumbo loan
The minimum credit score requirement for obtaining a jumbo loan is 680. Before getting a Jumbo mortgage, know the amount of equity you own on your home. Make sure that you have at least 20% of the total amount that is owed on the home. This will be used as the base for calculating your credit score requirement for this loan. A higher percentage of equity means a higher interest rate as well as a higher monthly payment. This is what you will be able to avoid if you are looking into obtaining a Jumbo mortgage loan.
USDA loan
USDA mortgage loans are designed to help people who are going through a difficult economic time. Many people have lost their jobs and their homes to foreclosures. The minimum credit score required for a USDA loan is 640.
VA loan
The minimum credit score required for this loan is 620. Veteran Affairs mortgage loans provide veterans with mortgages for individuals with qualifying income and credit conditions. This make this type of loan an ideal solution for our Veterans. The VA offers loans at affordable interest rates. It is available to veterans and active-duty military personnel only. Most importantly, there are no qualifications for veterans to get these loans.
The Veterans Affairs or VA is the government agency that insures and funds most VA home loans.
Mortgage type minimum credit score qualification
When it comes to the subject of the mortgage rate and the effect of credit score on it, most people are only concerned with the rate itself and nothing else. To understand the effect of credit score on mortgage rates, you need to know how the mortgage interest rate that you are currently paying affects the rate that you will be paying over the life of the loan.
The interest rate that you will be paying on your loan is based largely on your credit rating, there are several ways that your credit rating can be affected by the mortgage interest rate that you are paying today. One way that this can happen is if your credit rating goes down because of something that happened in the past. If your credit rating is currently good with no past bad incidents, then your mortgage interest rate will be lower than it would otherwise be.
It may not seem like anything at all, but if your current credit score is good but you find that your mortgage rates are going up because of something that may have happened in the past, then you should consider having your credit score re-done to see if the decrease in your rating that you find is related to your mortgage rates. This may not result in a lower mortgage payment amount. But, it can go a long way in lowering your monthly payments and improving your overall financial situation.
Buy a house with bad credit
Buying a house with bad credit will cost you extra money over time. You have to keep few things in mind if you are going to buy a house with bad credit. Credit score to buy a house threshold is low but you get better deals if you have an excellent credit score.
- Have money saving plan for a down payment.
- Should be ready to pay extra interest.
- Should look for ways to improve credit score.
- Look for FHA loans.
- Have a professional review your credit score report to check for errors.
Conclusion
A good credit score to buy a house matters for premium quality mortgages. If you are looking for new home with all modern upgrades, you get easy mortgage pre-approval with good credit.
Many factors come into play when looking to qualify to buy a house. Different Mortgage loan types have varied credit score requirements and different terms and conditions. You can buy a house with a low credit score but with a higher interest rate.
This Printable resource for home buying credit from Experian can help you!
